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Social Security Stunner; Bankruptcy of Nation Moved Up Several Years

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April 01, 2009 – Comments (3)

Chris Martenson takes a look at the latest CBO projections for the annual surplus/deficit of Social Security. Though still overly optimistic, they paint a VERY BLEAK picture for the US, our federal deficit, and ultimately the dollar. Here's the link and excerpts (emphasis mine):

Social Security Stunner; Bankruptcy of Nation Moved Up Several Years

...The current administration might as well be worrying about the fact that the US government itself is hurtling towards bankruptcy.

Not only are debts exploding - moving smartly past “unsustainable” and into “ruinous” - but revenues (tax receipts) are falling like a rock.

Yesterday it was reported that the difference between Social Security income (taxes) and outlays (benefits payments), which is known in Washington-speak as “the SS surplus”, would shrink to zero next year.

The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.

First of all, let’s clear something up. As we’ve covered here repeatedly, there is no such thing as the Social Security “Trust Fund”. A “trust fund” implies that there are funds held in trust somewhere. Instead the Social Security account consists of several 3-ring binders filled with government IOUs which will have to be repaid by taxpayers (surprise!)...

Next, it was only last year that I was writing about the impeding fiscal calamity that was awaiting us all in 2017 when the outlays for Social Security were slated to exactly match receipts. Now that date could be as early as 2010, apparently.

In the chart above (source), I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?

Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.

In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.

From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.

This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.

More importantly, this means that the United States eventual date with bankruptcy has been moved forward by about 8 years or so. It also means that instead of being some future problem, a few administrations down the road, it is a near certainty that the current administration will have to confront some very difficult funding decisions that will be forced by the inability to borrow enough to pay for everything...

Here’s another entirely silly paragraph in the article:

While the new numbers will not affect payments to current Social Security recipients, experts say, the disappearing surplus could have considerable implications for the government's already grim financial situation.

Here’s how Maincooncat expertly encapsulated the folly of that last sentence:

If there’s no longer going to be a surplus and the US government is insolvent how is this not going to affect payments to current recipients? Through more borrowing obviously, which simply dilutes the worth of future payments. So it patently will affect payments.

Yes indeed, good question, how can future payments not be affected? It’s a complete mystery to me why members of the media can manage to understand how a company overissuing common stock is dilutive to existing shareholders but cannot manage to understand that a country overissuing its common stock (the dollar) is dilutive to existing holders...

And here's another "winner":

Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 -- so long as the Treasury repays its debts.

My comment: Well, then, “liberal analysts” need to go back and take some basic accounting courses. The idea that it’s somehow possible for an entity to owe itself money, especially a government, is patently ridiculous. If it were possible to owe oneself money, then we’d all be fantastically rich. Let me put it this way, if you cannot figure out how to loan yourself money then the government cannot do it either. The Treasury is no more capable of "repaying its debts" than it is capable of reversing the flow of time.

This next piece from the article captures this busted logic with comic perfection:

And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

I am struck nearly speechless at the gigantic gap in logic on display in this sentence. “...repaying the billions it borrowed” by going “further into debt.

This isn’t that hard, folks. It is not possible to “pay off your debts” by borrowing money. The only source of funds the government has is either printing, which is a thinly disguised tax on all holders of money, or taxes which are, um, taxes and come from taxpayers. More borrowing is just pushing the obligation to repay off onto future taxpayers. It's really that simple.

The honest way of phrasing this would be future taxpayers will have to cover the spending excesses of current and prior generations and will either do this directly or indirectly depending on whether the government elects to cover the shortfalls with taxes or printing, respectively.

Conclusion: The United States government has a date with a fiscal emergency that will not differ appreciably from the current predicament in which GM finds itself. This future crisis will look like, act like, and feel like a bankruptcy. With history as our guide, we can be almost completely certain that political and monetary leaders will prefer a policy of printing over taxation and that this will ultimately result in a crisis of the currency involved.

There’s still time to do the right thing at the policy level, but not very much.

We are only a few years away, at most, from an irretrievable mismatch between our fiscal policies and reality.

3 Comments – Post Your Own

#1) On April 02, 2009 at 3:45 AM, DaretothREdux (39.76) wrote:

So, I called my congressman today and asked him if I could quit paying SS/Medicare/Medicade and just save my money if I promised to never ask for any aid from those programs....

I think he is still laughing.

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#2) On April 02, 2009 at 9:59 AM, Gemini846 (50.04) wrote:

I saw this yesterday and then yahoo followed it this morning claiming that nominal deflation (not things old ppl buy) is actually going to cause the annual increase to SS payments to be withheld for perhaps the next 3 years.  

Dare. Get ordained into the clergy and you can claim a religious exemption.

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#3) On April 04, 2009 at 11:46 PM, michaelvandeburg (< 20) wrote:

Social Security is nothing but generational slavery. Our government says, “Social Security is a compact between generations. For more than 60 years, America has kept the promise of security for its workers and their families.”

The 13th Amendment abolished slavery, yet slavery is being forced upon our children without a choice. It is time to free our children from the chains of generational slavery and bondage.

Is America really a nation of free people?

That is why I wrote the book "Social Security: The New American Slave." The time has come to expose this generational slavery. Why isn't the black community outraged about our children being forced into a lifetime of slavery? No one seems to be outraged about our children being forced into slavery. Why?

Social Security is nothing but a taxing scam by Congress. My opinion based upon one's permanent "rights and liabilities" created by U.S. Congress in the 1939 Statutes at Large that Social Security taxes do not apply to the average workers per the law. By right one should be able to claim their exemption from forced slavery.

This book lays out in fine detail our ‘unambiguous conferred rights and liabilities’ established by the United States Congress in 1939.

U.S.C. TITLE 26, Subtitle F, CHAPTER 80, Sec. 7851

(b) Effect of repeal of Internal Revenue Code of 1939

(1) Existing rights and liabilities

The repeal of any provision of the Internal Revenue Code of 1939 shall not affect any act done or any right accruing or accrued, or any suit or proceeding had or commenced in any civil cause, before such repeal; but all rights and liabilities under such code shall continue, and may be enforced in the same manner, as if such repeal had not been made.

Social Security: The New American Slave gives a detailed easy-to-understand breakdown of laws and one’s ‘rights and liabilities’ for Social Security. This second book in the series drives a wooden stake into the heart of a sacred government program and taxing scam.

Time to stop treating our own children like a bunch of cattle and niggers!!!

Social Security: The New American Slave, www.outskirtspress.com/socialsecurity

 

Author Michael Vandeburg
michael@vandeburg.com

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